Effectiveness and selectivity of direct job creation for welfare recipients: Evidence from Germany

In 2005, a large-scale direct job creation programme – the so-called One-Euro-Jobs – was introduced in Germany. One-Euro-Jobs are mainly temporary, part-time non-profit-sector jobs, which have to be additional and of public interest. Their central goal is to improve the employability and in turn employment prospects of welfare recipients with severe difficulties finding a job. This dissertation consists of four articles providing empirical evidence on the selectivity and effectiveness of One-Euro-Jobs shortly after their introduction in 2005. The analyses are based on administrative data. Using a statistical matching approach, we investigate the effectiveness of One-Euro-Jobs in terms of improving the labour market performance of participants. To gain a comprehensive picture of workfare impacts, we look at effect heterogeneity for different groups of participants and for different programme types as well as effectiveness in comparison to similar, but small-scale direct job creation programmes. We find that One-Euro-Jobs contribute to leading some groups of participants back to regular jobs, but not to ending their welfare dependency. Employment effects are heterogeneous: treatment is effective for those who have not been employed for several years, but not for those whose last job ended in the year before treatment. Lock-in effects are larger for longer planned participations, whereas for more intensive participations in terms of working hours this is not the case. When comparing the effectiveness of One-Euro-Jobs to two similar, but small-scale programmes, we find that these two programmes tend to perform better. The incentives to search for regular jobs do not seem to be much reduced by the wage paid in the two schemes compared to One-Euro-Jobs, but wages also tend to be low.